Novelis reports strong Q3 2016 results on record automotive shipments

Novelis, the world leader in aluminium rolling and recycling, yesterday reported net income of $6 million for the third quarter of fiscal year 2016. Excluding tax-effected special items, the company reported net income of $32 million in the third quarter of fiscal 2016 compared to $54 million in the third quarter of fiscal 2015.

Excluding the impact of metal price lag in both quarters, Adjusted EBITDA was $238 million in the third quarter of fiscal 2016, up four percent compared to $228 million in the prior year. The increase was driven by higher shipments of automotive and beverage can sheet, partially offset by less favorable recycling benefits due to depressed aluminium prices as compared to the prior year. Current year results also reflect higher fixed costs associated with new automotive and recycling operations.

"Our good performance this quarter validates our strategy to grow aluminium rolled products capabilities around the world to serve high growth, high value industries including automotive and packaging," said Steve Fisher, President and Chief Executive Officer for Novelis. "The success of our expansion projects coupled with our steady improvement in operational performance positions Novelis for continued growth and profitability."

Shipments of rolled aluminium products grew three percent to 779 kilo tonnes in the third quarter of fiscal 2016, as compared to 757 kilo tonnes reported in the prior year period. Despite higher shipments, revenues decreased 17 percent to $2.4 billion for the third quarter of fiscal 2016 driven by significantly lower average aluminium prices and local market premiums.

While average local market metal premiums stabilized during the third quarter of fiscal 2016, the company reported negative metal price lag of $26 million as it continued to turn higher average metal cost inventory from previous months. Although the company uses derivatives contracts to minimize the price lag associated with LME base aluminium prices, adequate cost-effective hedges are not available for local market premiums. Adjusted EBITDA for the third quarter of fiscal 2016 including metal price lag was $212 million.

The company reported negative $12 million of free cash flow in the third quarter of fiscal 2016 as compared to negative $12 million in the third quarter of fiscal 2015. Capital expenditures totaled $78 million in the third quarter of fiscal 2016, down from $104 million reported in the prior year period. The company continues to expect positive free cash flow for the full fiscal year and capital expenditures slightly below $400 million in fiscal 2016.

As of December 31, 2015, the company reported solid liquidity of $946 million.